The U.S. Environmental Protection Agency (EPA) has re-proposed greenhouse gas (GHG) emission standards for new fossil-fuel power plants, exercising existing authority under section 111(b) of the Clean Air Act. Proposed rule re Electric Utility Generating Units. The key proposal is an emission standard for new coal-fired power plants that would require the incorporation of substantial (but not complete) capture and sequestration of carbon dioxide emissions. This proposal is controversial because the GHG emission standard is based on carbon capture and sequestration technology that is not widely deployed and has not been demonstrated to be cost-effective for electric generation, absent government subsidies and location-specific opportunities to use sequestered carbon dioxide to enhance oil production (with its attendant, unsequestered GHG emissions).

EPA also proposes separate GHG standards for base-load and intermediate natural gas-fired generating units. Under these standards, natural gas power plants must utilize modern, efficient combined-cycle technology, which would likely predominate even in the absence of EPA’s regulations. Simple cycle gas turbines would generally not meet the proposed GHG emission standards, unless they are used in “peaking” plants (i.e., plants that sell less than one-third of their potential output), which are excluded from the proposed GHG emission standards.

Acting under a related, but rarely utilized, provision of the Clean Air Act, EPA is expected to propose, in June 2014, GHG emission performance standards for existing power plants. Whereas the new-unit GHG emission standards are imposed under EPA’s oft-used new source performance standards authority, GHG emission standards for existing power plants will be proposed under a separate statutory provision, section 111(d) of the Clean Air Act. Section 111(d) entails enforcement through federal guidelines and state implementation plans that may be infinitely more complex and variable than any existing regulatory schemes used to control other power plant pollutants presently regulated under the Clean Air Act. Since GHG emissions from the electricity sector account for more than one-third of total U.S. GHG emissions, GHG performance standards for new and existing power plants are seen as essential means to meet the Obama Administration’s international pledge to reduce U.S. greenhouse gas emissions by 17 percent below 2005 levels by 2020.

Given the Administration’s determination to rely on the existing Clean Air Act in the absence of a more comprehensive national GHG policy, such as the ill-starred, federal “cap and trade” legislation that foundered early in President Obama’s first term, it is noteworthy that EPA asserts that its proposed GHG emission standards for new power plants would have only a “negligible” impact on projected CO2 emissions and electricity costs. (79 Fed. Reg. 1430, 1495). This paradoxical outcome is attributed to EPA’s expectation that, even in the absence of the proposed regulations, other economic and regulatory factors are expected to lead electricity generators to adopt the very technologies that satisfy the proposed GHG emission standards in adding substantial new capacity that our growing economy will need. EPA’s entire regulatory analysis, which runs nearly one-hundred pages in the Federal Register, assumes a baseline for the electricity sector in which new generation capacity comes primarily from modern, efficient combined-cycle natural gas-fired plants rather than from any new coal-fired power plants. Reliance on this scenario means that EPA can argue that its controversial proposal to require carbon capture and sequestration for new coal plants will not significantly raise electricity costs above what would otherwise occur.

The Clean Air Act emission performance provisions for both new and existing power plants require EPA to make a determination “of the best system of emission reduction (BSER) adequately demonstrated” for covered sources. One of the more significant aspects of the proposed regulations for new power plants is EPA’s explanation of how it makes a BSER determination, taking into account criteria including, “feasibility, costs, size of emission reductions and technology.” Although EPA’s application of these criteria to new power plants has resulted in its projection of “negligible” impacts on the electricity sector, EPA’s forthcoming application of similar criteria to existing power plants under section 111(d) of the Clean Air Act will unavoidably impose significant costs and emission reductions on the electricity sector.

In the course of developing and implementing its GHG regulations on new and existing power plants, EPA may create an unprecedented federal and state regulatory scheme that will transform EPA from an environmental agency into a de facto energy regulatory agency, with profound impacts on the electricity sector and on traditional energy regulatory policy. In future blog postings, members of Davis Wright Tremaine’s Energy & Environmental Practice Group will continue to analyze the legal, regulatory, and economic aspects of EPA proposals.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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